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AbstractThis paper analyses how the functional components of public expenditure and spending‐driven consolidations affect the economic growth, unemployment, and income inequality. A dynamic panel data least squares dummy variable estimator estimator is employed over a sample of 15 European Union countries during the period 1990–2012. The empirical results show that real GDP growth decreases when fiscal austerity measures are implemented, especially if they are spending‐driven. Cuts in public expenditure undermine economic growth, namely if they slash spending on public order, recreation, and education. Spending cuts on education, in particular, affect the investment in human capital, harming not only growth but also economic, social, and human development. The unemployment rate also proved to be significantly boosted when austerity measures restrict spending on education, whereas income inequality rises when social protection expenditures are cut.

This paper analyses how the functional components and sub-components of government expenditures are affected by fiscal consolidations. A fixed-effects estimator is employed over a panel of 15 European Union countries during the period 1990-2012. The results show that spending on public services increases during fiscal consolidations, while spending on defence, public order, health, education and social protection is significantly cut. A more disaggregated analysis proves that fiscal consolidations are harmful for important social public expenditures, undermining citizens" safety, health assistance, investment in human capital and social protection. Public services are likely to be increased due to a rise in public debt transactions observed during periods of fiscal consolidation. All this evidence has proved to be stronger in a particular group of countries, known in the literature as PIIGS. ; The author also wishes to thank the financial support provided by the Portuguese Foundation for Science and Technology under the research grant SFRH/BSAB/113588/2015 (partially funded by COMPETE, QREN and ...

This paper analyses how the functional components of public expenditure and spending-driven consolidations affect the economic growth, unemployment and income inequality. A dynamic panel data LSDVC estimator is employed over a sample of 15 European Union countries during the period 1990-2012. The empirical results show that real GDP growth decreases when fiscal austerity measures are implemented, especially if they are spending-driven. Cuts in public expenditure undermine economic growth, namely if they slash spending on public order, recreation and education. Spending cuts on education, in particular, affect the investment in human capital, harming not only growth but also economic, social and human development. The unemployment rate also proved to be significantly boosted when austerity measures restrict spending on education, while income inequality rises when social protection expenditures are cut. ; COMPETE, FEDER, QREN, PORTUGAL 2020, Fundação para a Ciência e Tecnologia ...

This paper analyses whether Maastricht and Stability and Growth Pact fiscal rules have affected growth in the European Union negatively. A growth equation is specified for a group of 15 European Union countries (and 8 OECD countries) over the period 1970–2005 to analyse this issue. Panel estimations using fixed-effects, pooled mean group and system-GMMestimators show that the institutional changes that occurred in the European Union after 1992 were not harmful to growth. Moreover, results show that growth is slightly higher in the period in which the fulfilment of the 3% criteria for the deficit started to be officially assessed, i.e. after 1997 ; Fundação para a Ciência e a Tecnologia ...

Several studies have identified the factors that cause public deficits in industrial democracies. They consider that economic, political and institutional factors play an important role in the understanding of those deficits. However, the study of the determinants of excessive deficits remains practically unexplored. Since excessive deficits can have large negative spillover effects when countries are forming a monetary union without a centralised budget –as it is the case for a group of European countries – this paper tries to explore that gap in the literature by identifying the main causes of excessive deficits and the ways of avoiding them. Binary choice models are estimated over a panel of 15 European Union countries for the period 1970-2006, where an excessive deficit is defined as a deficit higher than 3% of GDP. Results show that a weak fiscal stance, low economic growth, the timing of parliamentary elections and majority left-wing governments are the main causes of excessive deficits in the EU countries. Moreover, the institutional constraints imposed after Maastricht over the EU countries' fiscal policy have succeeded in reducing the probability of excessive deficits in Europe, especially in small countries. Therefore, this study concludes that supranational fiscal constraints, national efforts to reduce public debts, growth promoting policies and mechanisms to avoid political opportunism and partisan effects are essential factors for an EU country to avoid excessive deficits. Finally, the results presented in this paper raise the idea that a good strategy for the EU countries to avoid excessive deficits caused by the opportunistic behaviour of their policymakers would be to schedule elections for the beginning or the end of the year. ; Fundação para a Ciência e a Tecnologia (FCT) - ...

This study intends to provide an empirical answer to the question of whether Maastricht and SGP fiscal rules have affected growth of European Union countries. A growth equation augmented with fiscal variables and controlling for the period in which fiscal rules were implemented in Europe is estimated over a panel of 15 EU countries (and 8 OECD countries) for the period 1970-2005 with the purpose of answering this question. The equation is estimated using both a dynamic fixed effects estimator and a recently developed pooled mean group estimator. GMM estimators are also used in a robustness analysis. Empirical results show that growth of real GDP per capita in the EU was not negatively affected in the period after Maastricht. This is the case when the recent performance of EU countries is compared both with their past performance and with the performance of other developed countries. Results even show that growth is slightly higher in the period in which the fulfilment of the 3% criteria for the deficit started to be officially assessed. Therefore, this study concludes that the institutional changes that occurred in Europe after 1992, especially the implementation of Maastricht and Stability and Growth Pact fiscal rules, should not be blamed for being harmful to growth in Europe. ; The author acknowledges helpful comments from Jennifer Smith, Natalie Chen, Francisco Veiga and Elias Soukiazis. The author also wishes to express his gratitude for the financial support from the Portuguese Foundation for Science and Technology under Scholarship ...

This paper tries to explain why high inflation levels persist during long periods of time, in several countries affected by chronic inflation, without the necessary corrective measures being implemented. Political models of conflict explain these delays as the result of coordination problems caused by collective choice-making mechanisms. The empirical results of a tobit model estimated over a panel of 10 countries affected by chronic inflation and covering 43 years of observations show that more fragmented political systems and those with a large number of parties represented in the parliament present greater delays of inflation stabilizations. Since higher fragmentation foments conflicts of interest, I conclude that such conflicts are one of the main causes of those delays in chronic inflation ...

AbstractThis study analyses how government popularity was shaped in the UK during the coronavirus disease 2019 pandemic. Using daily data for the Conservative party popularity rate, we find that their popularity was strongly dominated by factors related to the pandemic, more so by the political cases linked to its management and the measures that the government undertook than by the direct health impact of the coronavirus. The government stringency measures became more harmful for government popularity over time, especially when the pandemic metrics calmed down. The economy played a very marginal role in shaping government popularity during that period.

AbstractThis paper analyses the economic confidence indicators' reaction to the environment surrounding the COVID‐19 pandemic. Using Eurostat's monthly data for the economic sentiment in European Union countries, we found that, in the COVID‐19 era, confidence and perceptions about the economy are strongly dominated by factors related to the pandemic, more so by policy measures and the vaccination process than by the direct health impact of the coronavirus. This is found to be prevalent across the multiple dimensions of economic sentiment. Moreover, standard macroeconomic variables seem to play a smaller and more marginal role during this period.

AbstractThis paper assesses how economic freedom is affected by the ideological stance, being the first to analyse the role of dictatorial regimes and their ideological orientations. Using annual data for 145 countries over the period 2000‐2017 and a two‐step system GMM estimator, this study finds that democracies do promote more economic freedom than authoritarian regimes, but not in all circumstances The probability that economic liberalization is promoted is higher for right‐wing dictatorships than for other autocracies and comparable to other types of democratic ruling, with the exception of right‐wing democratic governments that strongly benefit liberalization. These right‐wing governments, alongside (the negative effect of) non‐right‐wing dictatorships, seem to be the main contributors to explaining why democracies in recent years are promoting more economic liberalization than autocracies. Additionally, our results suggest that democratic governments not ideologically identifiable seem to share a common dislike for policies that promote liberalization.

PurposeThis paper analyses the collapse of credit booms into soft landings or systemic banking crises.Design/methodology/approachA discrete-time competing risks duration model is employed to disentangle the factors behind the length of benign and harmful credit booms.FindingsThe results show that economic growth and monetary authorities play the major role in explaining the differences in the length and outcome of credit booms. Moreover, both types of credit expansions display positive duration dependence, i.e. both are more likely to end as they grow older, but hard landing credit booms have proven to be longer than those that land softly.Originality/valueThis paper contributes to our understanding of what affects the length of credit booms and why some end up creating havoc and others do not. In particular, it calls the attention to the important role that Central Bank independence plays regarding credit booms length and outcome.